Discover Financial Profit Rises 36%

3/21/2012 5:39 PM ET

Discover Financial Services (DFS) said Wednesday after the markets closed that its first quarter profit rose 36% from last year, driven by continued improvement in credit performance and higher card sales volume. The company's quarterly earnings per share also breezed past Wall Street expectations.

The company's total loans ended the first quarter at $56.3 billion, up 9% from a year ago. Credit card loans grew $1.6 billion from last year to end the quarter at $45.9 billion.

Discover card sales volume grew 7% to $25.6 billion in the first quarter, mainly driven by an increase in the number of customers using their Discover card.

First quarter delinquency rate for credit card loans over 30 days past due was 2.22%, an improvement of 137 basis points from the prior year. The credit card net charge-off rate for the quarter also fell 289 basis points from the prior year to 3.07%.

Payment services transaction volume for the quarter rose 8% from a year earlier to $46.7 billion, helped by higher PULSE, third-party issuer and Diners Club International volume.

For the first quarter ended February 29, 2012, Discover reported net income of $624 million or $1.18 per share, compared to $459 million or $0.84 per share for the year-ago quarter.

On average, 23 analysts polled by Thomson Reuters expected the company to earn $0.94 per share for the first quarter. Analysts' estimates typically exclude special items.

Revenue net of interest expense rose to $1.84 billion in the first quarter from $1.73 billion in the prior year quarter. Seventeen analysts had a consensus revenue estimate of $1.82 billion for the first quarter.

Net interest income for the quarter increased 11% to $1.29 billion, mainly driven by an increase in income from student and personal loans and lower interest expense. Provision for loan losses for the quarter totaled $152 million, down 64% from last year due to lower charge-offs as a result of the continued decline in delinquencies.

Last week, Discover announced a new $2 billion share buy-back program after it passed the U.S. Federal Reserve's bank stress test.

Discover shares, which have traded in a range of $20.51 to $33.20 over the past year, closed Wednesday's regular trading session at $31.64, down 22 cents. The stock is currently losing 39 cents or 1.28% in after hours trading.